Question

explain the leverage, liquidity and capital in bank

Answer 1

Leverage simply means amount of debt or borrowed money a company uses to finance its assets or generate returns for an investment . A capital structure consist of either debt or equity, debt is a leverage. In banking leverage is using borrowed money to generate returns on investment.

Liquidity is form of cash or short term assets that are used to pay bills and cover short term liability or financial obligations. Liquidity simply means realisation of short term assets into cash. Liquid assets are geneally government bonds, central bank reserves.

Capital simply refers to difference between assets and liabilities. Capital acts as a resource to cover losses. To survive assets must exceed liability at all times. Eg interest earning bonds, government bonds etc.